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THURSDAY, MARCH 2, 2006 DIAGNOSTICS &IMAGING WEEK PAGE 5 OF 13Court reportPatent dispute ending withInverness buy of ACON unitA Diagnostics & Imaging Week Staff ReportA nearly three-year-long patent dispute between twomedical diagnostics companies reached an unexpectedending recently with one company agreeing to buy theother’s rapid diagnostics business.Inverness Medical Innovations (Waltham, Massachusetts)has agreed to acquire the rapid diagnostics businessfrom ACON Laboratories (San Diego) for $175 million. Thedeal ends a patent infringement case brought by Invernessin 2004 over some of ACON’s core rapid test technology.ACON’s lateral-flow immunoassay business, which iswhat Inverness is acquiring, had 2005 revenue of $50 millionand operating income of $17 million. As part of the announcedsettlement, Inverness also will acquire ACON’s newly-constructedmanufacturing facility in Hangzhou, China.The acquisition is expected to close in the first or secondquarter, with the Hangzhou manufacturing facility tobe acquired through a separate closing expected to occurby the end of 2Q06.The aggregate purchase price for the acquired business,including the manufacturing facility, will be $175 million,subject to adjustment for working capital and netindebtedness with Inverness assuming, on a consolidatedbasis, up to $4 million in indebtedness related to theHangzhou facility.Inverness will pay ACON about $75 million at the closingof the acquisition and $20 million upon closing on theHangzhou facility. The remainder of the aggregate purchaseprice will be paid on completion of certain milestonesrelated to achievement of functional manufacturing targetsrelated to the products sold in each of the territories.The purchase price will be paid by issuing an aggregateof up to $50 million of Inverness common stock toACON, with the remainder being paid in cash.The deal involves ACON’s business in the U.S., Canada,Western Europe, Israel, Australia, Japan and New Zealand.The two companies said they also expect to enter into anagreement at the time of the closing under which Invernesswould agree to acquire ACON’s rapid diagnostic businessin the rest of the world in about three years, subject to satisfactionof certain future financial performance and operationalconditions.Inverness CEO Ron Zwanziger said that by acquiring themajority of the rapid diagnostic test business of ACON, “whohas proven to be an efficient manufacturer of both consumerand professional diagnostic products, we are adding significantrevenues at attractive margins as well as manufacturingcapabilities that will benefit us companywide.”Zwanziger said, “We are pleased to fully settle our infringementclaims against ACON,” adding that the strengthof the company’s patents “will be validated in several keyjurisdictions through the issuance of permanent injunctions,including findings of infringement.”He said that in order to leverage the ACON business’s“unique and successful operating philosophy,” Invernessintends to continue that business as a stand-alone salesunit operating through its existing distribution channels.David Doyle, a partner in the New York law firm ofMorrison & Foerster, which represented ACON in the underlyingpatent litigation, said, “This is a tremendous outcomefor both companies, one that we have been hoping for eversince the patent litigation commenced several years ago.We are pleased that the company has forged a partnershipwith Inverness to advance its innovative diagnostic capabilitiesinternationally.”In other legalities:• The U.S. District Court in Denver has dismissed alongstanding patent infringement lawsuit filed by Medtronic(Minneapolis) against BrainLAB (Westchester, Illinois).The suit originally was filed in 1998.The court ruled that, as a matter of law, BrainLAB’s imageguidedsurgery/radiotherapy products do not in-fringe anyof the patents involved in the suit, determining that the evidencedoes not support a finding of infringement.In September, a Denver jury had reached a verdict findingthat BrainLAB infringed four patents held or licensed byMedtronic, and determined that a reasonable royalty onBrainLAB product sales in the U.S. amounted to $51 million.The court’s ruling set aside that jury verdict and precludesthe injunction Medtronic had been seeking.“We are pleased to see that the court has confirmed theuniqueness of our image-guided technology and that ourtechnology does not infringe Medtronic’s patents,” said StefanVilsmeier, BrainLAB founder and CEO. “We look forward tocontinued success in our surgical navigation business and tosupplying our partners with our advanced technology.”• The Birmingham News last week reported that a federaljudge has denied the latest attempt by RichardScrushy, former CEO of HealthSouth (Birmingham, Alabama)to have the Securities and Exchange Commission(SEC) lawsuit against him dismissed, paving the way for atrial in 2007.It reported that in a one-page order, without elaboration,U.S. District Court Judge Inge Johnson denied Scrushy’smotion for dismissal and said that the SEC lawsuit canproceed – almost three years after its filing. The chargesinclude two counts of fraud and four counts of fraudrelatedclaims.The SEC is attempting to recover hundreds of millionsof dollars it describes as ill-gotten gains as the result of theaccounting fraud at HealthSouth while Scrushy headed therehabilitation chain.Johnson previously set a schedule for depositions andexpert witness preparation to last through this year, with atrial slated to begin April 2, 2007.See Court, Page 6To subscribe, please call DIAGNOSTICS &IMAGING WEEK Customer Service at (800) 688-2421; outside the U.S. and Canada, call (404) 262-5476.Copyright © 2006 Thomson BioWorld ® . Reproduction is strictly prohibited.